We are often asked where the Kiwi dollar might go.
In truth, currency is probably one of the hardest assets to call. To start with there are two sides to each pair, e.g. Kiwi vs. US or Kiwi vs. Aussie; while a country’s currency typically reflects the underlying strength of the economy, technically, it is the relative comparison that matters – it is not just about us.
Then there is the issue of looking forward.
Policies on trade, immigration, foreign investments, taxes and government spending can all impact growth, inflation and interest rates, and therefore the attractiveness of a country. If the share price reflects a company’s outlook, then the currency reflects a country’s fortunes. The analogy extends to dividends, which are returns to holders of shares; our interest rate is a form of compensation for providing capital to NZ.
On this front, tourism, construction, exports and the still relatively high interest rate versus the world are underpinning the Kiwi.
Nonetheless, in the US, talk alone of Donald Trump’s pro-growth plans on infrastructure spending and cutting taxes has already seen the US dollar rise 4%. On the flipside, the UK’s proposal to exit the EU left the Sterling 10% poorer. Unexpected election result played a role in both cases and added to the difficulty of forecasting.
Politics is evidently dynamic and hard to predict. Following Brexit and Trump some might have thought anti-establishment candidates would have done better in Spain, Austria and Italy; so far, the jury is out and we will see with elections in France and Germany next year. Then there are the abrupt resignations.
Perhaps, now that John Key is stepping down, he will rekindle his knack for currency trading.
Felix Fok
Portfolio Manager
Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.